Backlash Against Argentina Begins Over Its Plans To Nationalize A Public Energy Company

Repsol’s chairman Antonio Brufau said he will ask Argentina for $10 billion in compensation, after Argentinian president Cristina Fernández de Kirchner yesterday proposed a bill to nationalize YPF, according to the Buenos Aires Herald.Repsol has a 57.43 per cent stake in the company and the company’s CDS has been spiking. The government has accused YPF for not investing enough in its local oil fields and for not producing enough oil, which lead to a 110 per cent increase in oil imports last year.

The matter has been divisive in Argentina where people have come out in support of the president’s plan. But Buenos Aires city mayor Mauricio Macri has said that his centre-right PRO (Propuesta Republicana) party does not support the decision and that this is likely to make things worse for the Argentine people.

Argentina’s decision to nationalize YPF doesn’t come as a shock, but most had expected the country to expropriate about half of Repsol’s stake in YPF, not all of it. In response, Spain has already pulled its ambassador to Argentina which is a harbinger of an international backlash.

Argentina already risks alienating Spain it’s biggest foreign investor. The European Commission has also called off a meeting scheduled for April 19 – 20 between EU and Argentinian officials that was part of an existing bilateral trade and economic treaty between the two.

In a note that considers the fallout that the YPF fiasco could have on other oil companies in the country, Bank of America analysts Thomas Wong and Vitas Leung write:

“Although we think there is little immediate risk of Bridas being nationalized, it reflects the significant deterioration in the investment environment in Argentina, particularly in the oil sector. Argentine president Cristina Fernandez has nationalized pension funds and airlines since taking office in 2007.”

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